UPDATE 1-Mentor of Samsung scion seen stepping up after Lee arrest

* Group strategy head Choi seen taking caretaker
role-insiders

* Longer-term strategy, investment plans likely hampered

* Crown jewel Samsung Elec under control of “Mr Chip”

(Changes headline, edits)

By Se Young Lee and Miyoung Kim

SEOUL, Feb 17 The arrest of Samsung Group scion
Jay Y. Lee on bribery charges could hamper decisions on
strategic investments and acquisitions at the sprawling
conglomerate, insiders and former executives say, even with
strong leadership at its many businesses.

Although business at flagship Samsung Electronics
is humming along, big calls will need to be made and
the man most likely to be called upon to make them is Choi
Gee-sung, the top lieutenant at Samsung Group and a mentor to
Lee.

“Choi is very experienced and has done a good job. He is the
one best placed to manage group-level affairs in Lee’s absence,”
said one Samsung insider.

While Samsung Electronics is still smarting from the debacle
of its exploding Galaxy Note 7 smartphone batteries, its
semiconductor business is in rude health. Its share price has
risen about 60 percent in the past year.

But the wide-ranging investigation, part of a corruption
scandal that led parliament to impeach South Korean President
Park Geun-hye, has been a major distraction for the country’s
largest conglomerate, or chaebol.

“Everything has virtually stopped,” said a second executive
at Samsung Group’s powerful strategy office that Choi heads.
“We’re mainly focusing on the prosecutor’s investigation (into
Lee and Samsung) … We’ll be running an emergency plan and
everything will be under Choi’s control for now.”

But some others say even Choi’s role could be limited and
Samsung may have to rely more on each affiliate’s top
management, with Choi also under investigation by special
prosecutors.

“Since we’ve decided to dismantle group strategy office,
Choi’s role is likely to gradually decrease, although we can’t
say for how much and when,” another Samsung executive said.

A fourth group insider said: “We have a system in place with
professional management teams, so in terms of the day-to-day
operations things should be fine.”

None of the Samsung individuals wanted to be identified due
to the sensitivity of the matter.

“It’s not like Samsung businesses will grind to a halt.
There are many smart people at the company,” said Kim Yong-serk,
a former Samsung Electronics executive who is now a professor at
Sungkyunkwan University.

But the arrest of Lee, 48, will have an impact on
longer-term investment decisions at the conglomerate.

“Samsung presidents are evaluated on an annual basis, so
they can’t make bold bets about the future. They need a chairman
for that,” Kim said.

Samsung declined to comment on its management plans or
Choi’s role.

BEATING APPLE

When Samsung Electronics trailed Nokia in mobile phones –
just five years ago – Choi, then CEO, set his sights on a
different rival.

“Competition is coming from elsewhere. There’s a company
more profitable than us and we should change our target,” he
told Reuters in January 2012, referring to Apple Inc.

That year, Samsung ended Nokia’s 14-year domination of the
mobile market, ultimately also overtaking Apple as the world’s
biggest smartphone maker.

In a Samsung career spanning more than three decades, Choi
worked in all the main businesses, from semiconductors and home
appliances to televisions and telecoms, before taking over as
chief executive.

As head of strategy, 66-year-old Choi has acted as Jay Y.
Lee’s mentor and been closely involved in preparing the path for
him to take over from his father, who was incapacitated by a
heart attack in 2014.

Under Choi’s guidance, Lee has moved closer to succeeding
his father in a well-choreographed long-term plan, including a
restructuring of the conglomerate to cement the Lee family’s
control.

However, that plan included a controversial $8 billion
merger of two Samsung units that has been central to
prosecutors’ case against the group, and Lee.

Prosecutors accuse Samsung of paying bribes totalling 43
billion won ($37.74 million) to organizations linked to
President Park Geun-hye’s friend, Choi Soon-sil, to secure
government backing for the merger.

Choi Gee-sung and his deputy Chang Choong-ki were quizzed by
prosecutors over their role in the deal.

STEP UP FOR ‘MR CHIP’, TOO?

Lee’s absence, if prolonged, could also see a bigger role
for Kwon Oh-hyun, Samsung Electronics’ vice chairman and current
CEO.

Known as “Mr Chip”, Kwon has overseen the growth of
Samsung’s component business, which now generates much of the
firm’s profits.

“Kwon is a very practical manager. Like many Samsung
managers in the component business, he doesn’t feel comfortable
(in the limelight),” said an executive who worked with him.

Kwon, who studied electrical engineering at Seoul National
University and at Stanford, cemented Samsung’s position in
memory chips and expanded the contract chip manufacturing
business, producing chips that power the Apple iPhone.

But, for all the experience and qualities these senior
managers bring, Lee’s absence will be felt.

Lee had been instrumental in seeking to drive growth through
new businesses, including signing off on South Korea’s biggest
outbound deal: an $8 billion acquisition of U.S. auto
electronics maker Harman International Industries.

“The biggest problem is that Lee is the one who sets the
direction of Samsung as a whole,” the fourth group insider said.

“He doesn’t get into every business decision, but he’s the
one who has to sign off on major investments or acquisitions …
That’s why he can’t easily be replaced.”

(Additional reporting by Hyunjoo Jin; Writing by Miyoung Kim;
Editing by Ian Geoghegan and Lincoln Feast)

Source: Reuters

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